Properties that are vacant and held off the market, combined with the portion of properties backing seriously delinquent mortgages not currently listed for sale, represent a significant shadow inventory putting downward pressure on home prices.
And why is that happening? It wouldn't be because banks are holding properties back to avoid having to recognize losses, would it? Why is it that firms that hold these properties are not forced to recognize their market price as their asset value?
It is this "regulatory lie" that allows the distortion and destruction in the housing market to continue.
The decline in home prices has left many homeowners with “negative equity” in their mortgages, which means their principal mortgage balance exceeds the current market value of their home. According to CoreLogic, approximately 11 million, or 23%, of all residential properties with mortgages were in a negative equity position in the fourth quarter of 2010.
About 1 in 4. That's a serious number folks.
But it's not just people who would decide to walk away. Negative equity forbids resale if you have a job opportunity elsewhere. It therefore also precludes clearing the employment market, and that is at least as serious as the housing market problem.
In addition, servicer foreclosure process deficiencies and their consequences have created uncertainty for potential home buyers, because foreclosed homes account for a substantial part of the existing home market. Thus, widespread concerns about foreclosure process deficiencies could suppress home sales in the near term and interfere with the housing recovery.
There is no housing recovery because there is no reasonable expectation that the homes on the market today which were foreclosed have actual marketable titles. And Title insurance provides no assistance in this area - title companies are utterly incapable of providing payment against any material percentage of these deeds if they prove worthless.
We estimate that total originations in the U.S. single-family mortgage market in 2011 will decrease from 2010 levels by approximately one-third, from an estimated $1.5 trillion to an estimated $1.0 trillion, and that the amount of originations in the U.S. single-family mortgage market that are refinancings will decline from approximately $1.1 trillion to approximately $413 billion.
Read that twice folks: This is an all-on collapse from already-depressed levels.
We now expect that the peak-to-trough home price decline on a national basis will range between 22% and 29%, as compared with our expectation at the time we filed our 2010 Form 10-K that the peak-to-trough home price decline on a national basis would range between 21% and 26%.
That pretty-much defines the word "suck."
Credit-Related Expenses and Credit Losses. We expect that our credit-related expenses and our credit losses will be higher in 2011 than in 2010.
But but but ... I thought it was getting "better"?
Under the GSE Act, FHFA must place us into receivership if the Director of FHFA makes a written determination that our assets are less than our obligations (that is, we have a net worth deficit) or if we have not been paying our debts, in either case, for a period of 60 days.
Note that Fannie has an outstanding net deficit. If Treasury cannot get a debt ceiling increase, they cannot fund this. Therefore, Fannie goes into receivership. I'm sure this is part of the "world will end" crap that Geithner has been running. Then again, for exactly how long do you get to make net losses of this magnitude before the towel should be thrown in and the game called on points? Aren't we well past that point now?
The failure of our servicers or a law firm to apply prudent and effective process controls and to comply with legal and other requirements in the foreclosure process poses operational, reputational and legal risks for us. Depending on the duration and extent of the foreclosure pause and the foreclosure process deficiencies, and the responses to them, these matters could have a material adverse effect on our business.
Void judgment could be rather interesting ... I'd say that could have a "material adverse effect." Of course that's speculation ... at this point.
Approximately half of the loans we own or guarantee are registered in MERS’s name and the related servicing rights are tracked in the MERS System. The MERS System is widely used by participants in the mortgage finance industry. Along with a number of other organizations in the mortgage finance industry, we are a shareholder of MERSCORP, Inc.
Several legal challenges have been made disputing MERS’s legal standing to initiate foreclosures and/or act as nominee in local land records. These challenges have focused public attention on MERS and on how loans are recorded in local land records. As a result, these challenges could negatively affect MERS’s ability to serve as the mortgagee of record in some jurisdictions. In addition, where MERS is the mortgagee of record, it must execute assignments of mortgages, affidavits and other legal documents in connection with foreclosure proceedings.
What happens if MERS is discovered to have issued assignments initiated by the transferEE, not transferOR? What if, further, the transferOR didn't exist at the time of the transfer?
Can you process a transfer from an entity that doesn't exist to yourself speaking as both entities? I don't think so. But it appears that has happened - repeatedly. How this plays out is uncertain all right ... there's no way to know how this will wind up being resolved, but there are plenty of questions - and it would only take one of them to go the wrong way for things to get very interesting.
And that's an understatement.